Wednesday, May 8, 2013

Natural Gas Export Gaining Ground, but the Clock is Ticking

I'm a big believer that the world is made of shades of gray, not black and white.  Most of my strongly held convictions are constantly tested by conflicting data points.  It makes it incredibly difficult to hear pundits on TV and radio spouting at the mouth with such indelible confidence.  Nowhere is the shades of gray situation more evident than the debate over the export of U.S. natural gas via LNG.  I am a proponent of export because I am a gas fan and I admittedly have a vested interest.

Beyond that natural stance, I generally believe in free markets, and the free market is calling for LNG export.  The U.S. has an oversupply and other nations have constrained supplies, resulting in higher prices.  Boom!  We export our bounty to those countries - that's how the market works.

But an emotional argument is being made by U.S. manufacturing entities that it is in the best economic interest of the country to stifle this potential market to keep gas plentiful and cheap on our shores.  Ayn Rand is spinning in her grave with that self-serving argument, but as a patriotic dude, I do feel somewhat sympathetic.

But closing our borders to gas places a huge burden on another domestic industry, the natural gas E&P companies that would be unfairly penalized and forced to sell their product at a below market price.  One might note that because of the decades of price regulation that gas producers should be used to that, but it doesn't make the situation right.

I bring this all up again (and again) because of an interesting piece in the Financial Times earlier in the week that discusses the debate.  In addition to the economic issues, the article also brings up important geopolitical implications of selling gas to allies and countries we'd like to influence.  That's not an argument to be underestimated when the decision lies with the federal government.

Through recent speeches by President Obama and members of his staff, the administration clearly is in favor of export, but I think the real balancing act is how much and by whom.  Capping exports at a certain quantity might happen, although the free market types would go nuts.  They would (correctly) argue that the market would figure out how much could be viably exported. That would also leave the feds in the unenviable position of "picking winners."  Unfortunately, for all of the beauty of the free market, it works in very messy ways, especially when multi-billion dollar projects are at stake.  If left to the market, there will be winners and losers along with billions of dollars flushed out to sea by the vanquished.  Again, I don't see a right answer, just shades of gray.

Obama wants both sides to win, but the question is how.  No matter what the president decides there will be loud anguish and second guessing.  No doubt Senators Lindsey Graham and John McCain have already drafted retorts on both sides of the issue blasting the administration for whatever it decides.  That just seems the way these days in highly polarized Washington.

The balance between both sides is beneficial to the country, but the longer we piddle around with decision, the less time we have to take advantage of the opportunity.  While we may have "a century" of natural gas, we probably have four or five years to take advantage of the market opportunity.  The clock is ticking.

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